Commissioners of Inland Revenue v D. Devine & Sons Ltd
| Jurisdiction | Northern Ireland |
| Judgment Date | 01 January 1963 |
| Date | 01 January 1963 |
| Court | Court of Appeal (Northern Ireland) |
HIGH COURT OF JUSTICE, NORTHERN IRELAND (QUEEN'S BENCH DIVISION)-
COURT OF APPEAL, NORTHERN IRELAND-
Profits Tax - Deduction for remuneration of directors (other than whole-time service directors) of director-controlled company - Finance Act, 1937 (1 Edw. VIII & 1 Geo. VI, c. 54), Fourth Schedule, Paragraph 11, as amended by Finance Act, 1952 (15 & 16 Geo. VI & 1 Eliz. II, c. 33), Section 34.
The Respondent Company was controlled throughout the chargeable accounting period 1st January to 31st December, 1957, by two directors, A and B, neither of whom qualified as a "whole-time service director" for Profits Tax purposes. During the chargeable accounting period A admittedly worked full-time for the Company. B worked for three days a week, together with twelve additional days in the course of the chargeable accounting period. The Company was assessed to Profits Tax on the footing that the deduction allowable for directors' remuneration was limited by Paragraph 11, Fourth Schedule, Finance Act, 1937 (as amended), to £2,500 or 15 per cent. of the profits, whichever was the greater.
On appeal the Special Commissioners confirmed the assessment, and the Company required a re-hearing before the Recorder of Belfast. On behalf of the Company it was contended that for more than half the chargeable accounting period there were two directors who were required to devote substantially the whole of their time to the service of the Company and that accordingly the maximum deduction allowable in respect of directors' remuneration was £4,000. The Recorder allowed the appeal.
Held, that the director B was not required to devote substantially the whole of her time to the service of the Company.
Stated under the Finance Act, 1937, Fifth Schedule, Part II, Paragraph 4, and the Income Tax Act, 1952, Section 64, by His Honour Judge Topping, Recorder of Belfast.
1. On 15th November, 1960, I re-heard an appeal by D. Devine and Sons, Ltd. (hereinafter called "the Company"), against an assessment to Profits Tax in the sum of £1,297 19s. for the chargeable accounting period 1st January, 1957, to 31st December, 1957, made upon it in respect of profits arising from the trade of importers of and wholesale dealers in fruit.
2. The Company, being dissatisfied with the said assessment, appealed to the Commissioners for the Special Purposes of the Income Tax Acts (hereinafter called "the Special Commissioners"), who, upon hearing the appeal on 2nd June, 1960, confirmed the said assessment and dismissed the appeal.
3. The Company, being aggrieved by the determination of the Special Commissioners, duly required that I should re-hear the said appeal.
4. The question at issue before me was whether in computing the profits of the Company made in the chargeable accounting period of twelve months ending on 31st December, 1957, hereinafter called "the said period", the Company was entitled to be allowed a deduction in respect of the remuneration of directors of an amount not exceeding the maximum of £4,000 permitted by Paragraph 11(2)(a) of the Fourth Schedule to the Finance Act, 1937, as substituted by Section 34 of the Finance Act, 1952.
5. It was agreed before me that if the Company was entitled to be allowed the said deduction then the said assessment ought to be reduced to £839 14s. and if it was not so entitled then the said assessment ought to be confirmed.
6. The following facts were agreed.
(i) Throughout the whole of the said period there were two directors of the Company and no more, namely: Mr. C. O'Neill and Mrs. A. Devine, each of whom served the Company in a technical or managerial capacity and not otherwise.
(ii) At all material times the said two directors had a controlling interest in the Company.
(iii) Neither of the said directors was at any material time a whole-time service director, within the meaning of the Profits Tax legislation.
(iv) Throughout the whole of the said period the Company carried on the trade of importers of and wholesale dealers in fruit at premises occupied by it in St. George's market in the City of Belfast.
(v) The Company carried on business at the said premises on every day, except Sundays and public holidays, throughout the said period.
(vi) On every Saturday the business of the Company was carried on for four hours, and on every other working day for eight hours.
(vii) Mrs. A. Devine attended at the Company's said premises for eight hours on every Tuesday, Thursday and Friday. She was also available to serve in the Company's business on other occasions upon reasonable notice. Accordingly, she devoted herself to the Company's business for eight hours on each of twelve other days during the said period. During the said period she worked, during the whole of the Company's normal business hours, on 168 working days out of a possible total of 286 working days (if Saturdays are to be treated for this purpose as half days), or out of a possible 312 days (if Saturdays are to be treated as whole days).
(viii) Mrs. Devine was the widow of a former director, and during the said period attained 71 years of age. She had no other business interest or business activity.
(i) It was admitted on behalf of the Crown that Mr. O'Neill qualified as a director who was required, during the whole of the said period, to devote substantially the whole of his time to the service of the Company. The facts upon which this admission was based were not opened or discussed before me.
(ii) The appeal proceeded before me upon the basis that Mrs. Devine was required to work upon the days when she actually worked, and this was treated by both parties as not in dispute.
8. On behalf of the Company it was contended that non-consecutive periods of one day or of two or more days during which a director was required to devote substantially the whole of his time to the service of the Company ought to be aggregated and, if in the aggregate they exceeded one half of the chargeable accounting period in question, the relevant conditions required by Paragraph 11 ought to be regarded as satisfied in respect of such director. Alternatively, it was contended that a woman director over 71 years of age who was required to work throughout the Company's normal working hours to the extent mentioned in paragraph 6 (vii) of this Case Stated in a business such as that of this Company ought to be held to have been required to devote substantially the whole of her time to the service of the Company.
9. On behalf of the Crown it was contended:
(2) that the purpose of Paragraph 11 of the Fourth Schedule to the Finance Act, 1937, as substituted by Section 34 of the Finance Act, 1952, was to give additional relief to companies in respect of directors working "full time" or "whole time", in contrast with directors working "part time", as those expressions were to be understood in ordinary language;
(3) that, in order to satisfy the test laid down in Paragraph 11 as aforesaid, it was necessary for the Company to show as separate and distinct matters: (a) that Mrs. Devine was required to devote substantially the whole of her time to the service of the Company, and (b) that she was so required for more than half the chargeable accounting period ending on 31st December, 1957;
(4) that Mrs. Devine was not required to work more than three days a week plus twelve extra days in a year, and that this did not amount to substantially the whole of her time, and that the test at (2) (a) above was therefore not satisfied;
(5) that in ordinary language Mrs. Devine would properly be described as a part-time worker in contrast with a full-time or whole-time worker.
10. The following cases were cited in argument:
Commissioners of Inland Revenue v. Alexander Stirling, Ltd.,SC1943 S.C. 476;
Wilkie, Neck and Smith v. Commissioners of Inland RevenueUNK[1946] 2 All E.R. 13
11. On these facts I gave my decision in writing on the 2nd December, 1960.
Both parties relied upon the decision and judgments in Commissioners of Inland Revenue v. Stirling, submitting that although the statutory provision under consideration in that case was somewhat differently phrased, some assistance could nevertheless be derived. That case dealt with the position of working proprietors as defined in Section 13 of the Finance (No. 2) Act, 1939, and Section 31 of the Finance Act, 1940. The Lord President (Normand) said(1) that he
did not think it is legitimate to add up all the hours of part-time work and then to say that, as they amount to more than half of the total working hours of the business, therefore she has worked full time for more than half of the chargeable accounting period.
It seems to me that upon analysis the Lord President's judgment does not enunciate any positive rule or principle, but is a decision that upon the facts of that particular case aggregation of working hours was not a proper test. I am reinforced in this opinion by the words used by Lord Moncrieff, who said(1):
I think that had she worked full time during days scattered through the year these days might have been aggregated, although they had not occurred consecutively, so as to build up full time for half the year.
Lord Carmont said(2) that what was required was that,
the individual should work what is substantially her full time in the business.
It will be noted that Lord Carmont draws attention to the requirement of the Statute that it is the individual's working time which must be considered.
I am attracted to the submission on behalf of the Crown that the words used are clear words and capable of a plain meaning. I agree with this contention and I think the observations of the learned judges inStirling's case(3) indicate various factors which might be taken into consideration in applying the words of the Statute to a particular case. Lord Moncrieff tells us that working hours may possibly be aggregated. Lord Carmont reminds us that regard must be...
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